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PRA waives banks’ emergency liquidity disclosure

Fitch has criticised a move by the Prudential Regulation Authority (PRA) to waive the reporting of certain asset encumbrances of UK banks.

The credit rating agency claims that the regulator is covering up the full extent of emergency liquidity assistance (ELA) provided by the Bank of England (BoE) at the height of the financial crisis, making it more difficult to assess banks’ liquidity positions, especially during periods of stress.

In 2008, ELA to HBOS and RBS took the form of collateral swaps and according to Fitch, the BoE believes that immediate disclosure could defeat its purpose of maintaining financial stability, as it could result in deposit and creditor flight.

Fitch sums up: “In practice, we believe that provision of non-public ELA will increasingly be more difficult than during the 2008 financial crisis when RBS and HBOS received emergency funds peaking at £61.5 billion.

“That ELA was eventually disclosed in November 2009. The use of a collateral swap (rather than an outright loan) meant that the BoE was able to avoid disclosing the ELA in its weekly return. And the T-bills provided were indistinguishable from those provided under the Special Liquidity Scheme, which thereby served as camouflage for the operation.”